Introduction to this report:
The company maintains a lead in the domestic general speed reducer field. As demand in the general automation industry gradually picks up, the company is expected to fully benefit.
Key points of investment:
Investment advice: Considering the slowing recovery in manufacturing demand, we lowered the 2024-2025 EPS to 0.73/0.84 (-0.25/-0.38) yuan, and added the 2026 EPS to 0.99 yuan. Considering that the company is the absolute leader in general speed reducers, the 2024 PE was given 31x, and the corresponding target price was 22.63 (-5.57) yuan, maintaining an increase rating.
Performance is under pressure in the short term, waiting for industry demand to pick up. Affected by the continued decline in market demand in the reducer industry, product prices were under pressure. In 2023, the company achieved revenue of 2.66 billion yuan, a year-on-year decrease of 1.35%; net profit of 396 million yuan, a year-on-year decrease of 4.41%. Among them, gear reducer/cycloid wheel/GNORD achieved revenue of 2,052 million/385 million/121 million yuan respectively.
Overall profitability is stable, and the company's ability to control expenses is still excellent. In 2023, the company's gross margin and net margin were 26.0% and 14.8%, respectively, with year-on-year changes of -0.73 pct and -0.49 pct. Overall, profitability remained stable. In terms of cost rates, sales/management/R&D expenses were 2.8%, 2.9%, and 4.8%, respectively, with a year-on-year change of +0.0/-0.7/+0.4 pct.
Digging deeper into the downstream market segment, the company's market share continues to increase. The company actively improved the diversified business layout of five major sectors, including general speed reducers and Genuo Transmission, and continued to expand business areas, and developed new business areas such as marine engineering, photovoltaics, wind power, elevators, and injection molding equipment, including Henan Mining, Jingjin Equipment, BYD, Pilot Intelligence, and CITIC Expo, and continued to deepen cooperation with the company. In 2023, the company sold about 654,500 units of speed reducers throughout the year, an increase of about 7.64% over the previous year, further increasing its market share.
Risk warning: Increased market competition pattern, downstream manufacturing demand falls short of expectations, etc.